What is economic nexus?
Let's break down "sales tax nexus" into simple, bite-sized pieces for anyone diving into the world of online selling:
What is Sales Tax Nexus? Sales tax nexus is essentially the connection or link a business has with a state that requires the business to collect and remit sales tax in that state. This connection can be established in one of a few ways, including:
Physical Nexus: Traditionally, having a physical presence in a state, such as a retail store, office, warehouse, or employees, would create a sales tax nexus. This means if your business has any of these physical footprints in a state, you're typically required to collect sales tax from customers in that state.
Economic Nexus: "Economic nexus" is just a fancy way of saying if you sell a bunch of products or make a certain amount of money in a state (even without being physically there), you're supposed to collect sales tax on those sales. Each state has its own rules on what "a bunch of products" or "a certain amount of money" means. With the rise of e-commerce and the Supreme Court's decision in South Dakota v. Wayfair in 2018, economic activity within a state can also establish nexus. This means if your online business sells a certain amount or number of products to customers in a state, even without a physical presence, you might still need to collect and remit sales tax. The specific thresholds for what constitutes enough sales or transactions to create an economic nexus vary by state.
How Can I Keep Track? Keeping track of all this sounds like a headache, right? Well, luckily there are tools like Shopify’s tax liability monitor. They will keep track of all of your transactions that you have in Shopify and monitor your obligations and alert you when you need to start taking action. BreezyFile will also offer this in the future.
What Should I Do? First, take a deep breath. It sounds more complicated than it is. Then, maybe consider using a tool like BreezyFile to help you out. If you find out you do need to collect sales tax in different states, you'll have to register with those states' tax departments. After that, you just collect the tax when you make a sale there and send it to the state at the right times (usually every quarter or month). Shopify makes it easy for you to turn on sales tax calculations once you have your sales tax license in a new state.
Why Does It Matter? Sales tax doesn’t need to be scary - it's all about following the rules. States are indeed getting more serious about collecting sales tax from online sales because it helps pay for important stuff like roads, schools, and emergency services. Staying on top of this gives you peace of mind and keeps your business runs smoothly.
There you have it—sales tax nexus and economic nexus in a nutshell. It's just about knowing where you need to collect sales tax for your online sales and making sure you do it. Not too scary once you break it down! Here's a state-by-state breakdown to help you find your way:
Alabama 🌟
Threshold: $250,000/year
Notes: Sellers passing this sales milestone must register, collect, and remit sales tax for Alabama-bound shipments.
Since: January 1, 2016
Alaska 🏔️
Threshold: $100,000 in sales or 200+ transactions
Notes: Unique among states, Alaska requires tax collection in local jurisdictions adopting the Remote Seller Sales Tax Code if you meet the threshold.
Since: January 6, 2020
Arizona 🌵
Threshold: Adjusts from $150,000 (2020) to $100,000 (2021 onwards)
Notes: Arizona adopts a graduated approach; exceeding sellers must collect transaction privilege tax (TPT).
Since: October 1, 2019
Arkansas 🌾
Threshold: $100,000 or 200 transactions
Notes: Sellers over the threshold need to register for an Arkansas sales tax permit and manage tax collection and remittance.
Since: July 1, 2019
California 🏄♂️
Threshold: $500,000/year
Notes: California’s threshold requires registration and sales tax collection for large remote sellers.
Since: April 26, 2019
Colorado 🏔️
Threshold: $100,000/year
Notes: Passing this limit means engaging with Colorado's tax system, registering, and remitting sales tax.
Since: December 1, 2018
Connecticut 🍁
Threshold: $100,000 and 200 transactions
Notes: Exceed either, and you'll need to register for a Connecticut sales tax permit.
Since: December 1, 2018
Florida 🌴
Threshold: $100,000/year (excluding marketplace sales)
Notes: Sellers reaching this sales threshold must register and collect Florida sales tax.
Since: July 1, 2021
Georgia 🍑
Threshold: $100,000/year or 200 transactions
Notes: Meeting these criteria requires Georgia sales tax registration and compliance.
Since: January 1, 2019
Hawaii 🌺
Threshold: $100,000/year or 200 transactions
Notes: Sellers are obligated to register, collect, and remit sales tax for Hawaiian sales.
Since: July 1, 2018
Idaho 🥔
Threshold: $100,000/year
Notes: Sellers meeting this threshold must engage with Idaho’s sales tax requirements.
Since: June 1, 2019
Illinois 🌃
Threshold: $100,000/year or 200 transactions
Notes: Exceeding sellers need to navigate Illinois sales tax registration and remittance.
Since: October 1, 2018
Indiana 🏎️
Threshold: $100,000 or 200 transactions
Notes: Sellers over these limits must collect sales tax on Indiana-bound shipments.
Since: October 1, 2018
Iowa 🌽
Threshold: $100,000/year
Notes: Sellers meeting or surpassing this sales mark are encouraged to register for an Iowa sales tax permit, ensuring compliance by collecting and remitting sales tax on Iowa-bound sales.
Since: January 1, 2019
Kansas 🌻
Threshold: Over $100,000 in sales
Notes: Starting from mid-2021, e-commerce sellers hitting this sales figure in Kansas need to register, collect, and remit sales tax, aligning with the state’s economic nexus criteria.
Since: July 1, 2021
Kentucky 🏇
Threshold: $100,000/year or 200 transactions
Notes: Surpassing either threshold necessitates Kentucky sales tax registration and management for compliant sales processes.
Since: July 1, 2018
Louisiana 🐊
Threshold: $100,000/year or 200 transactions
Notes: Sellers meeting these benchmarks are obliged to handle Louisiana sales tax accordingly, from registration to remittance.
Since: July 1, 2020
Maine 🦞
Threshold: $100,000/year
Notes: Once crossing this sales threshold, registration for a Maine sales tax permit is required, followed by appropriate tax collection and remittance.
Since: July 1, 2018
Maryland 🚢
Threshold: $100,000/year or 200 transactions
Notes: Exceeding sales or transaction counts leads to mandatory Maryland sales tax processes for affected sellers.
Since: October 1, 2018
Massachusetts 🍂
Threshold: $100,000 in sales
Notes: Sellers who go beyond this limit need to engage with Massachusetts for sales tax permit, collection, and remittance.
Since: October 1, 2019
Michigan 🚗
Threshold: $100,000/year or 200 transactions
Notes: Sellers meeting Michigan’s criteria must navigate the state’s sales tax regulations, ensuring compliance in their operations.
Since: October 1, 2018
Minnesota 🌲
Threshold: $100,000/year or 200 transactions
Notes: Surpassing either threshold initiates the requirement for Minnesota sales tax permit registration and tax management.
Since: October 1, 2019
Mississippi 🏞️
Threshold: Sales exceeding $250,000
Notes: High-volume sellers to Mississippi must comply with state sales tax laws, including registration and tax remittance.
Since: December 1, 2017
Missouri 🎢
Threshold: $100,000 in sales
Notes: Retailers reaching this sales level with Missouri buyers need to adhere to the state’s sales tax regulations.
Since: January 1, 2023
Nebraska 🌽
Threshold: $100,000/year or 200 transactions
Notes: Meeting Nebraska’s sales or transaction thresholds mandates sales tax registration and compliance actions.
Since: January 1, 2019
Nevada 🎲
Threshold: $100,000/year or 200 transactions
Notes: Exceeding sales or transaction counts in Nevada calls for sellers to manage sales tax obligations accordingly.
Since: October 1, 2018
New Jersey 🗽
Threshold: $100,000/year or 200 transactions
Notes: Sellers crossing these thresholds must navigate New Jersey’s sales tax landscape, ensuring proper tax handling from collection to remittance.
Since: November 1, 2018 (Initially set for October 1, 2018)
New Mexico 🌶️
Threshold: $100,000/year
Notes: Once this sales threshold is crossed, engaging with New Mexico's gross receipts tax system becomes necessary, ensuring all sales tax obligations are met.
Since: July 1, 2019
New York 🗽
Threshold: $500,000/year and 100 transactions
Notes: New York's specific criteria demand that sellers reaching these numbers must register and comply with state sales tax laws, including collection and remittance.
Since: July 21, 2018
North Carolina 🏞️
Threshold: $100,000/year or 200 transactions
Notes: Achieving this level of sales to North Carolina customers requires adherence to the state’s sales tax registration and remittance procedures.
Since: November 1, 2018
North Dakota 🌾
Threshold: $100,000/year
Notes: Sellers surpassing this sales figure need to engage with North Dakota’s sales tax system, ensuring compliance through registration and tax activities.
Since: October 1, 2018
Ohio 🎢
Threshold: $100,000/year or 200 transactions
Notes: Exceeding these limits triggers the requirement for Ohio sales tax handling, from registration to collection and remittance.
Since: August 1, 2019
Oklahoma 🌪️
Threshold: $100,000/year
Notes: Sellers hitting this sales mark with Oklahoma must decide between registering for sales tax collection or adhering to notice and reporting requirements.
Since: November 1, 2019
Pennsylvania 💼
Threshold: $100,000/year
Notes: Reaching this sales level in Pennsylvania necessitates registration for sales tax purposes, ensuring full compliance with the state’s taxation laws.
Since: January 2019
Puerto Rico 🏝️
Threshold: $100,000/year or 200 transactions
Notes: Sellers meeting these thresholds must engage with Puerto Rico’s sales tax system, including registration, collection, and remittance of sales tax.
Since: January 1, 2021
Rhode Island ⚓
Threshold: $100,000/year or 200 transactions
Notes: Sellers crossing these thresholds are compelled to comply with Rhode Island sales tax regulations, either by collecting tax or adhering to notice and reporting requirements.
Since: July 1, 2019
South Carolina 🌴
Threshold: $100,000/year
Notes: Achieving this sales amount necessitates South Carolina sales tax registration, collection, and remittance to remain compliant.
Since: November 1, 2018
South Dakota 🌄
Threshold: $100,000/year or 200 transactions
Notes: South Dakota requires sellers meeting these sales criteria to manage sales tax obligations appropriately, marking a key decision in the landmark Wayfair case.
Since: November 1, 2018
Tennessee 🎸
Threshold: $100,000/year (as of Oct 1, 2020)
Notes: Sellers surpassing this sales figure in Tennessee are required to navigate through the state's sales tax registration and compliance landscape.
Since: October 1, 2019
Texas 🤠
Threshold: $500,000/year
Notes: A significant sales threshold that, once exceeded, obligates remote sellers to engage with Texas's tax system for sales tax collection and remittance.
Since: October 1, 2019
Utah 🏜️
Threshold: $100,000/year or 200 transactions
Notes: Meeting or exceeding these limits triggers the necessity for Utah sales tax compliance, including registration and diligent tax handling.
Since: January 1, 2019
Vermont 🍁
Threshold: $100,000/year or 200 transactions
Notes: Achieving these sales figures requires Vermont sales tax compliance from registration to remittance, ensuring adherence to state tax laws.
Since: July 1, 2018
Virginia 🌊
Threshold: $100,000/year or 200 transactions
Notes: Sellers reaching these criteria are mandated to register for Virginia sales tax, following through with collection and remittance processes.
Since: July 1, 2019
Washington 🌲
Threshold: $100,000/year
Notes: Once this sales threshold is exceeded, sellers must undertake Washington sales tax registration, collection, and subsequent remittance.
Since: October 1, 2018
Washington D.C. 🏛️
Threshold: $100,000/year or 200 transactions
Notes: Remote sellers surpassing these limits must comply with Washington D.C.'s sales tax collection and remittance obligations.
Since: January 1, 2019
West Virginia 🏞️
Threshold: $100,000/year or 200 transactions
Notes: Sellers who exceed these thresholds are required to navigate West Virginia's sales tax regulations, ensuring proper registration and tax remittance.
Since: January 1, 2019
Wisconsin 🧀
Threshold: $100,000/year
Notes: Exceeding this sales amount in Wisconsin necessitates engagement with the state’s sales tax system, including tax collection and remittance efforts.
Since: October 1, 2018
Wyoming 🏔️
Threshold: $100,000/year or 200 transactions
Notes: Upon crossing these sales thresholds, sellers are obligated to comply with Wyoming's sales tax requirements, from registration to tax management.
Since: February 1, 2019
